Wednesday, December 31, 2014

Business 2015 - Optimism, But Upgrade Your Strategy

2015-Business-Optimism Even though it has been a long haul since the recession, it’s nice to see more optimism as we close out this year and head into a new one. A November 2014 report by Kiplinger asserts that economic momentum is back on track. Growth is projected to continue at a 3 percent rate, consumer confidence is gaining strongly, hiring is on the rise, and job openings are at a near record level.

According to earlier studies from Forbes Insights, many entrepreneurs and small businesses not only feel the lessons learned during the past few years have helped them survive, but the recession also exposed flaws in their business strategies that they were able to fix. Here are some recommended strategic planning initiatives, culled from multiple studies, that you can apply to your business in the New Year:

  • Better Cash-Flow Controls: Obviously, falling income over the past years put additional pressure on small business cash flow. Some companies turned to cutbacks over boosting financial reserves; others focused on reducing overhead and expenses. But you need a balanced strategy, along with new lines of credit and financing.

  • More Focus on Strategic Planning: Small business owners now recognize the importance of planning amid the new economic environment and want to spend more time doing it. Less than half indicated they had a strategy in place during the recession, or to guide growth during the coming recovery period. This should be core for you.

  • Fight for More Government and Policy Support: Small businesses now believe they have played a key role in the U.S. economic recovery, but in spite of, rather than assisted by, support from the federal government. You can join the fight for action, particularly for even higher Small Business Administration (SBA) loan limits.

  • Continue to Increase Operating Efficiencies: A majority of small business leaders intend to be more aggressive going forward by implementing a range of actions to advance their businesses. Many cited a greater focus on cost cutting and efficiency as the number two step to achieving growth, with increasing sales still number one. See where you can maximize this type of profit.

  • Add New Revenue Streams and More Aggressive Marketing: At the same time, most small businesses plan to spend more on digital marketing in the year ahead, and pursuing new revenue streams is seen as a top priority for transforming bottom line profits. This approach will help you diversify and broaden your business’s product lines and services.

  • Grab Market Share from Competitors: A large majority of respondents to these studies acknowledged that the old way of doing business no longer works and that they need to find new ways to take advantage of market opportunities. Many are planning to be more aggressive in grabbing market share from competitors, and you should, too.

If small businesses tackle these initiatives, we will be supporting economists’ forecast and moving the U.S. economy toward a self-sustaining and continuing economic expansion. A healthy manufacturing sector, likely to gain even more strength in 2015, is creating an impetus to invest. Recent drops in gas prices are now extending to diesel and even home heating oil.

The National Federation of Independent Business’s Small Business Optimism Index is now up to 96.1, and is working its way back to pre-recession levels. This was led by a modest increase in the net percent of owners who plan to increase capital spending and more who expect higher sales in the next few months. But overall, small business owners are still looking for more clear direction to drive their optimism.

My take on all this is that entrepreneurs are seeing some light at the end of the tunnel, and the light is no longer a freight train heading straight at them. We always learn more when times are tough, and we should come away with more strength and determination, as well as real results. It’s time to soak up the optimism, do some real financial planning, and push the limits on all business fronts.

Marty Zwilling

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Sunday, December 21, 2014

The Discipline Of Execution Defines An Entrepreneur

TED-Conference-Dream When entrepreneurs come to me with that “million dollar idea,” I have to tell them that an idea alone is really worth nothing. It’s all about the execution, and investors invest in the people who can execute, or even better, have a history of successful execution. Execution is making things happen, and for startups it usually means making change happen, which is even more difficult.

For most people, execution is one of those things that seems obvious after the fact when done correctly, but is hard to specify for those trying to learn to do it better. I found a book on this subject, “The 4 Disciplines of Execution,” by Chris McChesney, Sean Covey, and Jim Huling, which seems to talk well to startups as well as the corporate world it was written for.

These authors argue effectively that the hard part of executing most strategies is changing human behavior – first the people on your team, then partners, vendors, and most importantly, customers. No startup founder or leader can just order these changes to happen, because it isn’t that easy to get other people to change their ways. Changing yourself is tough enough.

Here are four key disciplines that I believe the best entrepreneurs follow to expedite the change and forward progress implicit in the successful execution of a million dollar idea:

  1. Focus always on one or two top priority goals. We all live with the stark reality that the more we try to do, the less well we do on any of the elements. Thus focus is a natural principle. Narrow you and your team’s focus to one or two wildly important goals, and don’t let these get lost in the whirlwind of daily urgent tasks and communications.

  2. Identify and act on leading measures first. Some actions have more impact than others when reaching for a goal. Hold the lagging measures for later (results available after the fact), and focus on lead measures first (predictive of achieving a goal). For example, more customer leads are predictive of more sales revenue later.

  3. Define a compelling scoreboard. People on your team play differently when someone is keeping score, and even better when they are keeping score, and even better when they have defined how their score is measured. This is the discipline of engagement. If the scoreboard isn’t clear, play will be abandoned in the whirlwind of other activities.

  4. Create a frequent forum for accountability. Unless we feel accountability, and see accountability on a regular cadence, it also disintegrates in the daily whirlwind. It’s even better if team members create their own commitments, which become promises to the team, rather than simply job performance. People want to make a contribution and win.

These four disciplines must be implemented as a process, not as an event. That means your team needs to see them as a normal and continuous focus, not a one-time push which fades in the rush of other daily priorities. The team needs to see the process practiced by the startup founder, as well as preached regularly.

Startup founders also need to realize that building and managing a company is quite different from learning to search for and solidify an idea that can grow into a company. Every entrepreneur has to navigate that personal change from thinking to doing to managing.

It’s not only the change from thinking to managing, but also the change and learning from constant iterations. Major changes, called pivots, are terrifying to a team that has put months of constant focus into executing what they thought was a great idea. If you don’t have an execution process, you have chaos.

Overall, every entrepreneur should be concerned if they don’t regularly feel stretched beyond their comfort zone, meaning mastering the art of execution if you are mainly creative, or developing creativity if you are mainly process driven. Don’t forget that the fun and challenge is in the learning, so enjoy the ride. The entrepreneur lifestyle is not meant to be comfortable.

Marty Zwilling

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Friday, December 19, 2014

7 Ways to Feed The Growth Beast In Every Business

business-growth “If you build it, they will come.” It's a line from an old movie "Field of Dreams" which is still leading to the demise of too many startups, led by entrepreneurs who really started their business to build an exciting new product or service. Most struggle with the idea and practice of marketing and sales, and see these as a necessary evil, if even required.

Of course, for a price, there are many marketing organizations and gurus willing to come to your aid. But marketing is not “rocket science,” so I’m a big proponent of self-help and practicing the pragmatics in-house first. A great resource for all is a recent book by Drew Williams and Jonathan Verney, “Feed the Startup Beast: A 7-Step Guide to Big, Hairy, Outrageous Sales Growth.”

This book correctly characterizes every startup as a beast that has to be well fed to grow. The ingredients for growth are well known: patience, persistence, and a plan. The first two p’s are up to you, but I agree with the authors that an effective plan and execution in this new Internet world needs to be built around a minimum of the following seven steps:

  1. Ask the single most important question. The only question you need to ask is “How likely are you to recommend my [product/service/company] to a colleague or business associate?” In every constituency, there are fans, fence-sitters, and critics. Fans contribute 2.6 times more revenue than “somewhat satisfied,” and critics kill revenue at twice the rate that fans increase it. Too many critics and not enough fans spell disaster.

  2. Listen to targeted prospects through real engagement. Engage first, sell later. The laws of engagement require targeting the best prospects first, offering a real value proposition, and making an offer which is valuable, timely, and relevant. Continue building the relationship to nurture them into paying customers.

  3. Focus your resources to convert prospects to customers. Build a plan with automation to manage the volume, but every customer has to feel like you are reaching out to them personally. Fine-tune the marketing and sales conversion engine to narrow the funnel, and build a sales team to close every sales-ready lead.

  4. Attract and get found by the right prospects. The planning is done, and now it’s time to execute. Make your startup valuable and visible, with great content that can not be missed by online search, influencers, and offline events. Use social media in concert with a web site and offline media. In all venues, 20% of the effort gets you 80% of the results.

  5. Pursue and intrigue prospects who respond. Put your best efforts into helping prospects break through the clutter, engage them, and intrigue them. Your goal is to get them to think different, like Apple, or be surprised and delighted with the experience. Be sure to track the engagement rate, and be quick to pivot if the breakthrough rate is low.

  6. Nurture customers and influencers into real fans. Turning your customers into real fans is the best leverage you have. Fans have a triple impact: they are more profitable, stay longer, and bring in others. Effective fan-nurture programs include an advisory panel, a “constant contact” program, referral program, and a one-question survey.

  7. Grow and measure the conversion rate. Here are four essential conversion rates you need to track: prospects to engaged prospects (target 38%), engaged prospects to sales-ready leads (20%), sales-ready prospects to customers (35%), and customers to fans (60%). This kind of conversion can easily result in 100% year-over-year revenue growth.

If you want success in selling your product, you need to put the same focus, intensity, and innovation into marketing and sales, as you have put into building the product. It won’t happen magically, but it doesn’t require an army of experts or a huge budget. Really, it’s all about having great information, great tools, and the determination to learn what customers really value.

Completing each of the above steps allows your startup beast to pick up momentum, fueling a breakthrough in growth, and ultimately making it unbeatable in the marketplace. The modern day field of dreams mantra has pivoted to “If you market it, they will come.” Are your customers coming fast enough?

Marty Zwilling

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Monday, December 15, 2014

10 Incentives For Entrepreneurs To Bootstrap Their Startup

startup-funding I’ve always wondered who started the urban myth that the best way to start a company is to come up with a great idea, and then find some professional investors to give you a pot of money to build a company. In my experience, that’s actually the worst way to start, for reasons I will outline here, and also the least common way, according to an authoritative survey of new startups.

Based on the Startup Environment Index from the Kauffman Foundation and LegalZoom a while back, personal money, or bootstrapping, continues to be the primary startup funding source. Eighty percent of new entrepreneurs use this approach, with only six percent using investor funding. The remaining entrepreneurs borrow from family and friends, or acquire a loan.

So before you become obsessed with landing investors to fund your idea and minimize your risk, consider the following:

  1. Finding investors takes work, time, and money you can ill afford. Entrepreneurs who plan to complete a business plan the first month, find an investor the second, and roll out a product the third month are just kidding themselves. Count on several months of effort and costly assistance to court investors, with less than a 10% success rate.

  2. Anyone who gives you money is likely to be a tough boss. If you chose the entrepreneur lifestyle to be your own boss, don’t accept money from anyone. Every person who gives you money will want to have “input,” if not formal approval on every move. Be prepared to live with communication, negotiation, and milestones every day.

  3. Don’t give up a chunk of your company and control before you start. Even a small investor in the early days will take a large equity percentage, due to that pesky valuation challenge. At least wait until later, when you ready to scale, and have some “leverage” based on a proven business model, some real customers, and real revenue.

  4. You will squeeze harder on your own dollars than investor dollars. It’s just human nature that we remember the pain of earning our own dollars, versus those “donated” by someone else. Focusing on the burn rate and prioritizing every possible expense will keep overhead down, help you stay lean, and achieve a higher profit earlier.

  5. Sometimes survival requires staying under the radar. People who give you money like to talk about their great investment, and competitors see you coming. Sometimes creative efforts need more time before launch, or your efforts to run the company need tuning. Investors like to replace Founders who don’t seem to be moving fast enough.

  6. Managing investors is a distraction from your core business. Fundraising and investor governance are never-ending tasks, which will take real focus away from building the right product and finding real customers. Having more money to spend, but spending it on the wrong things, certainly doesn’t pave the road to success.

  7. Entrepreneurs need to start small and pivot quickly. Start with a minimum viable product (MVP), as well as a minimum viable team. Investors like a well-rounded team, working in a highly parallel fashion. That takes more money and time to set up, and more people to re-train and re-educate when forced to redirect your strategy.

  8. The best partners are ones who share costs and risks. With no investors, you will work harder to find vendors who will absorb costs and associated risks for a potentially bigger return later. Since they now have real skin in the game, they will also work harder to show quality and value, which is a win-win-win for you, them, and your customers.

  9. You will be happier and under less pressure. You should choose to be an entrepreneur to be able to do what you love. Yet we all apply pressure to ourselves to do these things to our own satisfaction. Investor money brings so many additional pressures, that personal happiness and satisfaction can be completely jeopardized.

  10. Show you are committed to your startup, not just involved. When you put your own financing on the line, your partners, your team, and eventually your customers will know that you are committed to solving their problem. That increases their motivation and conviction, which are the keys to their success as well as yours.

Of course, some of you will say, I don’t have a dollar and my big idea can’t wait. Unfortunately, outside investors are not an answer to this problem. To investors, having no money indicates that you may not have the discipline to manage their money, and manage a tough business process as well.

In these cases, I would suggest you work in another similar startup for a while, to learn the business, save your pennies, and test your startup concept on the side. A startup idea executed hastily and poorly will be killed more completely than any timing delay. Are you sure the money you seek is really your key to changing the world?

Marty Zwilling

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Monday, December 8, 2014

7 Elements Of Inspiration From The Steve Jobs Model

quote-from-steve-jobs Steve Jobs was one of those entrepreneurs who seemed universally either loved or hated, but not many will argue with his ability to innovate in the technology product arena over the years. He was instrumental in creating Apple, which has pioneered a dazzling array of new products, and even surpassed Microsoft, to become the world’s most valuable technology company.

Carmine Gallo, in one of his books a while back on secrets, “The Innovation Secrets of Steve Jobs,” outlines Jobs “insanely different principles for breakthrough success.” I’m not convinced that Jobs’ world was that simple, but Carmine has boiled it down to seven principles, which I suggest every entrepreneur can learn from even today, as follows:

  1. Do what you love. Think differently about your career. Steve Jobs followed his heart his entire life and that, he said, made all the difference. Innovation cannot occur in the absence of passion and, without it, you have little hope of creating breakthrough ideas.

  2. Put a dent in the Universe. Think differently about your vision. Jobs attracted like-minded people who shared his vision and who helped turn his ideas into world-changing innovations. Passion fueled Apple’s rocket and Jobs’ vision created the destination.

  3. Kick start your brain. Think differently about how you think. Innovation does not exist without creativity, and for Steve Jobs, creativity was the act of connecting things. Jobs believed that a broad set of experiences broadened the understanding of the human experience.

  4. Sell dreams, not products. Think differently about your customers. To Jobs, people who bought Apple products were never “consumers.” They were people with dreams, hopes, and ambitions. Jobs built products to help them fulfill their dreams.

  5. Say no to 1,000 things. Think differently about design. Simplicity is the ultimate sophistication, according to Jobs. From the designs of the iPod to the iPhone, from the packaging of the Apple’s products to the functionality of the Apple Web site, innovation means eliminating the unnecessary so that the necessary may speak.

  6. Create insanely great experiences. Think differently about your brand experience. Jobs made Apple stores the gold standard in customer service. The Apple store has become the world’s best retailer by introducing simple innovations any business can adopt to make deep, lasting emotional connections with their customers.

  7. Master the message. Think differently about your story. Jobs was a great corporate storyteller, turning product launches into an art form. You can have the most innovative idea in the world, but if you cannot get people excited about it, it doesn’t matter.

Carmine suggests and I agree that these principles for breakthrough innovation will only work if you see yourself as the brand. Whether you are an entrepreneur working out of your bedroom, or a small business owner looking for ideas to improve your business, you represent the most important brand of all – yourself.

How you talk, walk, and act reflects upon the brand. Most importantly, how you think about yourself and your business will have the greatest impact on the creation of new ideas that will grow your business and improve the lives of your customers.

Thus you need to look inward first and assess your basic potential. Then imagine what you could achieve in business with the real insight and inspiration. Imagine what you could accomplish if you had Steve Jobs guiding your decisions. What would Steve Jobs do? Follow the principles above and you can do it too.

Marty Zwilling

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Sunday, November 30, 2014

The Right Startup Advisors Are As Valuable As Money

President Barack Obama meets with Warren Buffet in the Oval Office, July 14, 2010. (Official White House Photo by Pete Souza)

This official White House photograph is being made available only for publication by news organizations and/or for personal use printing by the subject(s) of the photograph. The photograph may not be manipulated in any way and may not be used in commercial or political materials, advertisements, emails, products, promotions that in any way suggests approval or endorsement of the President, the First Family, or the White House. If you are a new entrepreneur, or entering a new business area, it’s always worth your time to assemble an Advisory Board of two or three executives who have travelled that road before. You need them before you need funding, and if you select the wrong people, or use them incorrectly, no amount of money will likely save your startup. Even top executives rely on their advisors.

For perspective, you need to remember that boards of advisors, unlike directors, have no formal power or fiduciary duties, but rather serve at the pleasure of you the business owner. But they are not likely to stroke your ego, or be cheerleaders. They need to tell you the truth about you and your business, good or bad.

Using them effectively requires real effort on your part. If you give and ask for nothing, you will get nothing. Used correctly, they will be your best advocates to investors, and can save you from making major mistakes. Here are some tips on finding and using your advisory board effectively:

  • Select people who complement your experience. If your experience is primarily technical, get someone who has built a business. If your business is too small for a CFO, get an advisor with heavy financial experience. If the business area is new to you, find someone who has lived it. Balance is best.
  • Be specific on help needed. If you've chosen your advisory board members carefully, you're asking busy, successful people to carve even more time out of their schedule to help you. Let each one know how you see his/her expertise – it may be insight on trends, organizational advice, or funding connections. Set a fixed term, like one year.
  • Formalize the compensation. Most advisory board members sign up because the want to help you, not because of the compensation. Yet you should offer a reasonable monthly fee and/or some stock options to show you are serious about the position. If you want out-of-town members on your board, you reimburse the travel expenses.
  • You need to drive to process. It’s smart to schedule a monthly Advisory Board meeting, with a formal agenda, as well as informal communication to keep everyone on the same page. Advisors can’t help you if they only hear from you once every six months. They expect you to initiate specific requests, rather than having to ask for updates.
  • Respect their time commitment. For a business executive, nothing is more annoying than a poorly run meeting where the presenter is unprepared, rambles, and wastes time. Make sure every meeting is facilitated well so that concrete action steps, deadlines and assignments result. Have someone take notes so that decisions are recorded.
  • Recruit the best for your real Board. Your Advisory Board is a pre-cursor to your Board of Directors, a bit further down the line. This is your chance to test commitment, chemistry, and contribution for that more formal position. It’s a great networking opportunity to expand your connections to include all their connections as well.

On the other hand, if you find your Advisory Board is a burden on you, or you find yourself hiding things from them, then you have the wrong people, or you are letting your ego get in the way. Members can provide a mirror so that you can see your company as experts see it, as long as you look in that mirror with eyes wide open.

If you are looking for someone to fill an operational gap, or to do product design, it’s usually more productive to look for a partner, employee, or consultant. These can help you when you don’t know what you don’t know, or to create what you don’t have.

If you use your advisory board to feed your ego, or correct your mistakes, you will likely be disappointed. Worse yet, your image as an entrepreneur will be damaged. That will inevitably spread through networking across the business community. You don’t need that kind of help.

Marty Zwilling

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Monday, November 24, 2014

Surround Yourself With People Smarter Than You

smartpeople Helpers do what you say, while good help does what you need, without you saying anything. People who can help you the most are actually smarter than you, at least in their domain. Top entrepreneurs spend more time putting the right team in place to accomplish their objectives than they spend on any other components of their job.

Some entrepreneurs are so in love with themselves (narcissistic) that they insist on answering every question, and making every decision. That’s not only impossible, but also counterproductive. Effective entrepreneurs team with or employ people who can provide the answers directly, pertinent to their particular area of expertise.

True leaders also know how to move out of the way to let others do what they do best. If you’re working too many hours and following up on every detail you may want to look closer at your team to ensure you’ve surrounded yourself with the right people.

In short, if you can find people with more passion, more knowledge, and more desire to succeed than you have, it will push you to be better and take the organization to new levels. Here are some key characteristics to look for:

  1. Gets things done. Smart people know what’s required, or can figure it out, and are confident enough to make decisions without you. Getting things done is crucial to running a business. Often people with advanced degrees have academic smarts, but are not closers. You can’t afford to make every decision, or follow-up on every action item.

  2. Recommend their own ideas. How often do the people around you recommend sound ideas that you never knew were possibilities? If you’re teaming with people who are smarter than you, you should be frequently surprised with their new ideas and solutions. You will be constantly learning from them.

  3. Passionate and positive. The smart people you want are as positive and passionate about your business as you are. They take ownership and responsibility for their actions. They convince you with their actions and questions that they understand the big picture. They speak confidently and deliberately, rather than defensively.

  4. More listening than talking. Look for team members who are active listeners, where you can see yourself seeking them out for answers, rather than always the other way around. It’s great to team with inexperienced people who are growing so fast, that you can envision working for them soon, or having them take the helm of your business.

  5. Avoid the narcissists. Their energy, self-confidence, and charm make them look smart, but they resist accepting suggestions, thinking it will make them appear weak, and they don't believe that others have anything useful to tell them. Narcissists will take credit for all successes, and always find someone to blame for their failures and shortcomings.

One of the most important jobs of every entrepreneur, and definitely one of the toughest, is to find and nurture people who are smarter in their roles than you. Resumes don’t provide much of a picture in this regard. Supplement this with networking input, references, and your own personal interactions.

If you are looking for a potential business partner, count on building a relationship over several months, before you really know the person. The business relationship at that level is just as important as a personal relationship before marrying (no overnight affairs). If you are hiring, make sure you have multiple interviews, and input from multiple people on the team to balance your view.

In my view, one of the most important aspects of being a successful entrepreneur is surrounding yourself with people smarter than you. Don’t let your ego get in the way. It’s the best way for you to grow the business, as well as yourself.

Marty Zwilling

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Saturday, November 22, 2014

The Best Business Leaders Are Visible At The Front

SpaceX_factory_Musk_heat_shield True leaders realize that, by definition, the word "leader" places the leader at the front, and not the rear. Yet many, many executives try to lead through fear and intimidation. This isn’t really leading at all. It’s pushing. In all businesses, leading from the front means that you are not afraid to get your hands dirty, pitching in to get the job done.

True entrepreneur leaders see the big picture and recognize that their business is only a small piece of a much bigger community. They lead their own small community to pull together in a way that galvanizes the entire ecosystem of the market into a win for both sides.

For maximum leverage, every leader has to learn how to delegate. Delegation is a great skill to have, but you also have to lead effectively to earn the right to use it. Intimidating or berating other team members from a position of power isn’t delegation or leadership.

In every growing business, people are expected to wear multiple hats, each and every day. An effective leader that wears many hats easily creates loyalty. This is a quality that cannot be bought or bullied. Loyalty must be earned, and business executives who earn it generally do the following:

  • Communicate and demonstrate a clear sense of purpose
  • Provide great coaching, mentoring, and tutoring
  • Encourage, recognize, and reward achievement
  • Ensure credit is given where credit is due
  • Be consistently dependable and knowledgeable
  • Demonstrate accessibility to everyone
  • Treat people fairly
  • Listen well
  • Show patience and humility
  • Helpful and quick to expedite important matters
  • Prove loyalty by standing up for the team, defending them to other constituents, and when necessary, to customers

Funny thing about loyal team members - they respond very well to being led from the front. Your team’s level of motivation and attention to detail is always going to have a fairly direct correlation to your ability to keep things moving forward, despite the cyclone spinning around you.

People will make mistakes, so accept it now - certain tasks, even critical ones, can get lost in the noise. The 100% solution is never attainable - so forget about. Strive for 90% and try to get that part right. The rest will come in time.

Communicate effectively and constantly with your team. No news is not good news in times of crisis. Tell the truth even when it hurts. Don’t be caught stuck to your chair while the storm is swirling around you. You must stay on top of everything and everyone. And guess what, you will miss things, too. Get over it.

Unfortunately, a crisis often drives leaders to retreat behind closed doors instead of advancing to the source of the problem. They withdraw to their desk, get inundated with data, overwhelmed by numbers and lose the connection with their people. If one of your executives fits this mold, you need to get rid of them. Otherwise they will kill you in the end, one way or another.

Leadership is about being visible and setting the right example out front on the firing line, in good times, as well as times of crisis. There is no place for the bully, who fails to take the feelings of others into account and insists on his or her way, and no place for the tyrant, who feels superior and needs to rule the roost.

Now is the opportunity for real leadership, with all the economic challenges around the world, and continuing human suffering. There is a saying in the military that generals who lead troops from the safety of the rear, should have to take it in the rear. That’s not a comfortable position for anyone.

Marty Zwilling

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Monday, November 17, 2014

The Planned Iteration Startup Launch Minimizes Risk

Eric_Ries The traditional mode of starting a company has been to plan a serial process, where you complete once all the steps, leading to the “big bang” launch of the company. I strongly recommend a dramatic departure from this model, called “planned iteration” or Lean Startup methodology, where you assume you won’t get it right the first time, so you launch with a minimum viable product (MVP).

This idea was first articulated by Paul Graham in an old essay, called “Startups in 13 Sentences” in which he talked about “making a few people really happy rather than making a lot of people semi-happy.” One of his key points is that “launching teaches you what you should have been building,” and I agree.

All you old software development types will recognize the analogy to the traditional two year “waterfall model” of software development, which has been totally replaced with the Agile iterative methodology. Agile assumes and plans for iterative development, where requirements and solutions evolve as more is known and markets change.

Don’t mistake this for a license to launch an incomplete or poor quality solution. Your strategy today should be to define and excellently prepare the absolute minimum product that will excite a selected small segment of your intended customers, and roll it out to them – as a Beta, early promotion, or even a give-away.

Then you assess feedback, adjust your offering, and iterate until you get it right (have some very satisfied customers). Plan on multiple small launches, with iterations, rather than a big launch. Here are the advantages I see with this approach:

  • Faster time to market. If you launch fast, you can be working with real customers in 4-6 months from your start, rather than 1-2 years. In today’s fast moving marketplace, needs, competitors, and costs change rapidly, so even if you were right, two years later the wave has moved on. Equally likely, your first target was wrong, and you will need to adjust.
  • Show some traction before funding. Let’s face reality, the angel or VC funding process now takes 4-6 months of almost dedicated effort and time, and usually fails because you don’t yet have a product or customer. By using a laser-focused approach for the first iteration, you may actually produce something and get a customer without funding. Now investors will pay attention, since scale-up funding is less risky and has a time frame.
  • Fail fast and cheap. Since you can predict that your first iteration will somehow miss the mark, speed and cost of pivoting are critical. We all know how hard it is to turn a battleship. With a minimum viable product, your startup remains much more agile. The planned iterations can then be applied more productively to enhance the right offering.
  • Find customers, partners and channels early. There is nothing like a real customer pipeline to convince you that you need partners and channels, and to convince partners, channels, and investors that you are real. Get out there personally and find that first customer. It will narrow your development focus, and adjust your strategy for you. Spend your time finding renewable sources of customers and iterate.
  • Use social networking to start the wave. Costs are low these days to set up a credible website, do some search engine optimization, start blogging, and start mining the social networks for interest. It won’t cost you your whole funding pot to start some momentum, or to realize that your original strategy needs major tuning.

Think about it. Where did Google, eBay, and Facebook come from? They inched their way into public view before the first multi-million dollar funding rounds, and they have never had a big public launch. New product companies in the offline world start one store at a time, or in one geographic area.

Big bang product launches are the domain of big enterprises, and you can never match their clout and budget. The biggest advantages you have as a startup are speed and agility. Use them.

Marty Zwilling

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Monday, November 10, 2014

Crowd-Funding Success Usually Brings New Challenges

Pebble_smartwatch_size Many entrepreneurs seems to be convinced that the “crowd” of regular people using the Internet will somehow solve their startup funding needs, when they sense a lack of interest from accredited investors. Professionals maintain that there is plenty of money and equity for qualified startups, and funding marginal startups via any source will only make more people unhappy.

Well-known crowd-funding platforms on the Internet, led by Kickstarter and Indiegogo, have worked for years to provide non-equity “funding” for many startups, as outlined in my previous article Don’t Be Fooled By All The Hype For Crowd Funding. But safely seeking equity investments from the crowd via the Jobs Act of 2012 is problematic and has still not been defined.

A lesser variation, called crowd-pitching, by organizations like Funding Universe, is an offline event, which give several candidates an opportunity to pitch to a crowd of interested people for a couple of minutes, after which the crowd “votes” with some play-money to pick the best candidate, who then wins introductions and guidance in getting loan approvals or equity funding.

Certainly both of these crowd-sourcing approaches provide the entrepreneur with an opportunity to hone their pitch, get some free consumer feedback on the idea, and maybe some introductions to funding sources. But from my perspective in really helping entrepreneurs, both fall short on several counts:

  1. Focus too much on the product, not enough on the business model. When pitching to consumers, online or offline, the feedback will likely be on features and design. The key success factors of the business model (how a business survives and grows), management expertise, and financial projections will likely get overlooked.

  2. Amount of funding provided is usually not enough. The amount of time and money required for publicity and promotion of any crowd-funding activities may be more than the return. In reality, a few thousand dollars to a few winners, is tantalizing but probably not a return on the investment. Many fail spectacularly after exceeding their funding objectives.

  3. Multiple micro-investments are not manageable. Investors know how tough it is to get a set of terms accepted by even two investors, much less hundreds. The administration of legal conditions, signatures, disclosures, and distributions is a nightmare. In my opinion, that’s why micro-finance has rarely worked, even for loans.

  4. Proposal content is too short to be meaningful. In all cases, to keep non-professionals attention, the content of the offer online, or pitch presented, is very limited. No one contemplates including a business plan, investor presentation, or even the equivalent of an executive summary.

  5. Crowd sample size and makeup not representative of market. If the pitch is offline, the audience is likely to small and mostly budding entrepreneurs. Even online, the type of people who may respond to social media requests may bear very little relationship to the intended market.

  6. Investors are not prepared for the high risk of startups. Crowd-funding investors are not constrained to be accredited professional investors. They may not understand that nine out of ten startup investments provide minimal to no return, and the risk of securities law violations is very high.

  7. Intellectual property is jeopardized. Non-disclosure agreements can’t be done in these environments. In an environment populated by entrepreneurs rather than investors, when you are new to the game, you are exposing your plan to your biggest potential competitors.

Crowd-pitching groups are making an effort to mitigate these problems by pre-screening the candidates, and providing an experienced panel of investors to do the judging. This helps by making sure the feedback is realistic, and the presenters have a rational business opportunity to present. I’m already working with a couple of organizations along these lines.

Overall, there is no question that crowd-funding makes sense for non-profits soliciting donations, artists seeking support from fans, and many small entrepreneurial efforts. But in the competitive world of “the next big thing,” with millions of dollars at stake to be lost, counting on these mechanisms when professional investors decline is usually ignoring the real problem.

Marty Zwilling

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Friday, November 7, 2014

A Perspective On When A Business Plan Adds Value

notepad-business-plan As a startup mentor and investor, I am approached regularly by aspiring entrepreneurs who assert that business plans are a waste of time. They cite sources like the BusinessWeek story, “Real Entrepreneurs Don’t Write Business Plans” and this Forbes article. From my perspective, much of this advice is an urban legend and just plain wrong.

Based on my experience, a business plan always adds value to the entrepreneur – most people can’t build a complete plan in their head, and need the process of organizing it on paper to make it consistent and complete. The size of the document should be based on your style, but 10-20 pages or slides are usually more than adequate to outline even a complex business.

Beyond the value to the entrepreneur, let’s take a look at how and when a written plan might add value, or even be required, by other people who may be critical to the success of your startup efforts. Most of these scenarios involve attracting outside investors, strategic partners, or key team members:

  1. You are the team and you don’t need outside funding. Tiny bootstrapped teams usually don’t have a business plan, and probably don’t need one. They can iterate and evolve their business idea with a low burn rate and minimal dependencies. A formal plan will only add value after they finalize a model, build a team, and are ready to scale.

  2. You’ve built a successful startup before, and plan to use the same investors. If you have a proven track record, investors don’t have to see a written plan to believe you can do the job. In fact, they are probably in such a hurry to give you money that they don’t want you to waste time writing anything down and passing it along to new investors.

  3. You need funding, and plan to get it from friends and family. Hopefully you know your friends and family better than I do, so you decide when a business plan is required. If your rich uncle is an accountant, or has his own business, I recommend a good business plan. On the other hand, your mother probably won’t read one.

  4. You need money, and plan to do crowdfunding. Although the major crowd funding sites today, including Kickstarter and Indiegogo, don’t technically require a business plan, they do demand essentially the same information in a project format. Thus building a business plan ahead of time will improve your application and chances of success.

  5. You need an investor, and want a document to mass-mail to everyone. Creating a business plan for this purpose is a waste of time. In fact, the whole process is a waste of time. Most VCs and Angel investors don’t read unsolicited proposals, unless they have met you first, or have a glowing recommendation from another investor or acquaintance.

  6. You need an investor, and want to solicit professionals online. Major platforms are available online to find Angel groups or VCs, including Gust and AngelList. These platforms, and every investor who uses them to find entrepreneurs, expects to find a good business plan posted. You won’t even be considered without a business plan.

  7. You find an interested investor or bank, and need to close the deal. Most professional investors, even if they like your story, and were properly introduced by a friend, will ask for a business plan at the due diligence stage. They want to see if you have done your homework, have reasonable expectations, and are willing to commit.

You might fairly conclude from these points that a business plan is only “required” if you want to close funding from professional investors who don’t already know you or know your track record. Since the best VCs deal primarily with known and proven entrepreneurs, it’s easy for them to say that they don’t read business plans.

On the other hand, don’t forget Angel investors, who fund 60 times as many startups, to the tune of $20 billion last year, who start their search primarily from platforms like the ones mentioned above. A business plan may be a small investment to get a shot at that opportunity.

For the rest of you entrepreneurs, consider the value of a business plan when it is not required. Clemson University professor William B. Gartner looked at data a while back from the Panal Study of Entrepreneurial Dynamics, and found that writing a plan increased the chances by two and a half times that a person would actually go into business.

Of course, building a plan is not an alternative to getting out there and doing something. There is no substitute for knowing your customers first hand, and iterating on a minimum viable product to find the most marketable solution. Writing it down promotes both understanding and commitment.

Overall, I sense that not writing a business plan is more often an excuse rather than a time saver. Building a business is a long-term non-trivial task, like building a house. Would you give money to someone, without a plan, who had never built a house before? Hopefully you wouldn’t even build your own house without a plan. You should treat your new business with the same respect.

Marty Zwilling

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Monday, November 3, 2014

Bootstrapping Organic Growth Makes Startup Sense

business-organic-growth When someone asks me for the best way to fund a startup, I always say bootstrap it, meaning fund it yourself and grow organically. Bootstrapping avoids all the cost, pain, and distractions of finding angels or VCs, and allows you to keep control and all your hard-earned equity for yourself. Despite all the focus you hear on external investors, over 90% of startups today are self-funded.

I grew to appreciate this approach much more when I interviewed a popular serial entrepreneur, Rich Christiansen a while back, who has done almost 30 businesses wholly by bootstrapping. He published a book with Ron Porter, titled “Bootstrap Business”, that provides a wealth of practical examples and advice on this subject.

The essence of his approach is to dedicate yourself to becoming a frugal minimalist in everything you do. I like his approach, and have extracted some tips from his book and other sources on how to do it:

  1. Use a virtual office. Rent is one of the biggest expenses for any business. If you can, start your business in your home office, basement or garage (Bill Gates, Steve Jobs, and many other legends used this approach).

  2. Think minimum spending. Spend the absolute minimum for what you need (equipment, software, and services) to keep your business running. Don't justify over-spending initially with "long-run" thinking. If you do, there probably won't ever be a long run!

  3. Reinvest gross profit. Most startup founders already do this, rather than take a salary, to improve their offering. Take little to no net profit. Simply take enough to live on, but not to the point of your detriment.

  4. Act big, behave small. Create the illusion of ‘big’ without the large building and large staff. Use voicemail, a world-class website, and personal customer service, with small expenses, to beat your big competitors.

  5. Do it yourself. Network big to get connections and ideas, but do the work yourself. Every outside hire increases your cost and risk. Hire experts, not help. Low paid help isn’t cheaper if it takes them twice as long to do the job, or they do the job wrong.

  6. Don’t plan for failure. Planning for failure almost invariably leads to failure, or at least has a way of undermining your resolve. The tough times are what separate the survivors from the many strewn casualties lying alongside the startup highway.

  7. Practice creative marketing. One of the keys to keeping start-up costs low is to find creative and affordable ways of doing what you need to get done, rather than just spending cash. All you need is a blog, Twitter, email, some business card stock, and a little creativity.

  8. Don’t think about the exit. As soon as you bring in investors, they force you to plan for an exit (merger or sale) in three to five years. It’s critical to them, since that’s the only way they can realize a return on investment, but it limits your options for growth and change.

Sometimes the tiniest details will throw your startup company into disaster. Understanding your business totally will give you much better operational control. In most cases there is a direct correlation between the quality of your decisions and the size of your revenue stream. For minimum risk, you must understand fully this cause-and-effect correlation.

In summary, watch your costs, trust your gut, and drive forward with all the passion in your dream. The growth may be slower with bootstrapping, but it’s all yours.

Remember, the goal is to keep venture capitalists or any investors from sinking their teeth into your business. When you let them on board, you lose control of your destiny. Isn’t this contrary to why you signed up to be an entrepreneur in the first place?

Marty Zwilling

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Monday, October 27, 2014

The Good, The Bad, And The Ugly Of Software Patents

software-patent-minefield I always advise software startups to file patents to protect their “secret sauce” from competitors, and to increase their valuation. The good news is that a patent can scare off or at least delay competitors, and as a “rule of thumb” patents can add up to $1M to your startup valuation for investors or M&A exits (merger and acquisition).

The bad news is that patent trolls (non-producing companies that make their money from licensing patents) can squeeze the lifeblood out of unsuspecting entrepreneurs, as exemplified by the recent mess around Lodsys suing small Apple IOS developers. This patent holding company has charged infringement and demanded royalties from every app developer for the iPhone and Android, for a feature most agree has been in apps for many years.

Yes, the software patent process is a mess. I say this with conviction even after I survived the process, and have a software patent pending. Consider this list of commonly recognized software patent flaws, as summarized from my research, Paul Graham’s “Are Software Patents Evil?” original essay, and the “Enough is Enough” emotional Lodsys article by VC Fred Wilson.

  • Process is onerous, expensive, and time consuming. Count on spending $10K to $20K per patent just for a USA application today, unless you do most of the work. Even after your application is accepted, the issuing process takes a lifetime in today’s technology (4-5 years). Then you need to repeat the process for every country of interest.
  • Patents have become a tax on innovation. A lot of companies, like Lodsys above, buy up software patents that are over-broad, and hold startups hostage after the fact, through royalties and litigation. They know that these entrepreneurs don’t have the skill or resources to defend themselves. Patents only help the big guys who want no change.
  • Software technology changes rapidly. Software changes fast and the government moves slowly. The USPTO has been overwhelmed by both the volume and the novelty of applications for software patents, and they can’t maintain a qualified staff. Patents currently last 20 years, which is way too long in the software business.
  • Patents granted that don’t meet the criteria. To be patentable, an invention has to be more than new. It also has to be “novel” and non-obvious. Moreover, patent law in most countries says that software “algorithms” aren't patentable. So lawyers routinely frame a software algorithm as a "system and method" to meet the criteria.
  • Valid patents have been overturned by unpatented prior art. Until mid-2013, the USPTO still operated on the doctrine of “first to invent,” rather than first to patent. This hit RIM (Research In Motion) a few years ago, and cost them $650M to recover. At least that shouldn’t happen again, as the US process is now consistent with the rest of the world.
  • Applying for a patent is a negotiation. As a result, lawyers always apply for a broader patent than they think will be granted, and the examiners reply by throwing out some of the claims and granting others. They don’t insist on something very narrow, with proper technical content.
  • Different rules around the world. What I have described so far is the situation in the US. In Europe, software is already deemed not patentable, and other parts of the world are somewhere in between. In some countries, software patents are not recognized, and in others they are not enforced. We need a global solution.

So what’s the answer? I would argue to simply eliminate the software patent – since software is an implementation and is already covered by trademark and copyright law anyway. Others put their hopes in patent reform legislation, to tighten the definition of software patents and targets trolls. This legislation seems stalled in its tracks for now, due to lobbying efforts of the bio-pharmaceutical industry, along with universities and trial lawyers.

Either way, new computational technology algorithms would still be patentable, as long as the algorithm meets the defined requirements for novelty, usefulness and inventiveness. I’m a big supporter of building and protecting a portfolio of real intellectual property, and maximizing your startup’s valuation, but it shouldn’t be just a legal game.

Marty Zwilling

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Sunday, October 26, 2014

Entrepreneurs Work On The Business As Well As In It

live_image_presentation Over 25 years ago, Michael E. Gerber wrote a best-selling business book called The E-Myth: Why Most Businesses Don’t Work and What to Do About It. The E-Myth (“Entrepreneurial Myth”) is the mistaken belief that most businesses are started by people with tangible business skills, when in fact most are started by “technicians” who know nothing about running a business. Hence most fail.

Some pundits argue that the E-Myth principle is now outdated, due to the instant access to information via the Internet, pervasive networking via social media, and courses on entrepreneurship at all levels of education. Perhaps an innate business savvy is no longer a requirement for starting a successful business.

Let me assure you that based on my experience, I’m not convinced. I still see too many businesses started by technicians who haven’t acquired the basic skills or knowledge, or still assume that business acumen is a minor part of the new business equation. I also see no evidence that the percentage of new business successes has gone up in the last couple of decades.

I believe that most entrepreneurs today, at least in the technology domains I frequent, still work in the business (“Technician’s Perspective”), rather than on the business (“Entrepreneurs Perspective”). Here are some key ways these views differ:

  • The Entrepreneurial Perspective asks the question: “How must the business work?” This perspective looks at the business as the product, competing for the customer’s attention against a whole shelf of competitors. The Technician’s Perspective asks: “What work has to be done?” In this view the product features, cost, and support are the key to success.
  • The Entrepreneurial Perspective sees the business as a system for producing outside results for the customer, resulting in profits. The Technician’s Perspective sees the business as a place in which people work to produce inside results for the Technician, producing employee income.
  • The Entrepreneurial Perspective starts with a picture of a well-defined future, and then comes back to the present with the intention of changing it to match the vision. The Technician’s Perspective starts with the present, and then looks forward to an uncertain future with the hope of keeping it much like the present.
  • The Entrepreneurial Perspective envisions the business in its entirety, from which is derived its parts. What’s important is the business as a whole: how it looks, how it acts, how it does what it is intended to do. The Technician’s Perspective envisions the business in parts, constructed from the bottom up, based on technical tasks.
  • The Entrepreneurial Perspective is an integrated vision of the world, where the customer need is an opportunity to make meaning. The Technician’s Perspective is a fragmented vision of the world, where customer satisfaction represents a series of problems to solve, with price, features, availability, and support.
  • To the Entrepreneur, the present-day world is modeled after a vision of a better way, one that will stand out with customers from all the rest in the past, and give the joy and satisfaction of success. To the Technician, the future is modeled after the present-day world, the model of past experience, and the model of getting paid for effort or results.

The challenge of every Entrepreneur and Technician is to maintain the right balance of views to get things done, win in the marketplace, and keep everyone happy. As startups grow, they quickly realize that they need a third personality, called the Manager, to build systems and processes. The Manager craves order, and often ends up cleaning up after the other two.

Perhaps someday our education system and other resources will facilitate everyone starting a business to have that balanced view, but I don’t see it happening any time soon. In the interim, I recommend you use social media and the Internet to find your alter-ego. Two heads are still better than one, to get the right business started, and get it started right, without worrying about the E-Myth.

Marty Zwilling

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Saturday, October 25, 2014

Answer These Ten Key Questions To Beat Competitors

change-the-model Change is hard. I see entrepreneurs every day who are trying to change the world with a new idea, and startups that are trying to survive their hyper-growth phase by changing processes to meet demand. In both cases, it’s easy for them to become frustrated and give up, since most have never been trained in change management, and don’t even know what questions to ask.

A while back, I spotted a new book for change management leaders in large organization, and I realized that many of the issues they face are the same as ones faced in every growing startup. Phil Buckley, in “Change With Confidence,” provides practical answer to fifty of the biggest questions that keep change leaders up at night.

Here are ten of the key questions that apply equally well to the world of startups and entrepreneurs, as they do to large organizations. If entrepreneurs answer these questions for their startup, they will definitely stay ahead of most of their competitors in the startup world:

  1. What is the “secret sauce” that my startup brings to the problem? Your passion is necessary but not sufficient to motivate real change. You need to quantify change results that constituents can see, feel, smell, or taste. Words alone, like “improved efficiency”, “paradigm shift,” and “breakthrough technology” won’t convince people to follow you.

  2. Who are the stakeholders who can most influence success? Stakeholders are key people impacted, or leaders who influence key people. For example, early adopters may be easily sold, but new technology product success really hinges on adoption by certain demographics, perhaps more influenced by celebrities or mommy bloggers.

  3. What do I need to know before I commit to deliverables? The last thing you need in a startup is a false start, where you can’t deliver on a product change deadline, or a new marketing channel. Deliverables and the resources you have to achieve them are two sides of the same equation. Make sure they match before you commit.

  4. How do I measure success? Define hard (data) and soft (anecdotal) metrics on the change, as well as on the quality of your leadership. That means you have to start with assessing the current state against the same metrics, before you can assess progress or change. Make sure metric results are available to the team, to keep them motivated.

  5. Will my proposed change actually achieve the desired outcome? It’s important to separate optimism and dreams from market realities. Ask yourself, “If I were an investor, would I support this effort, given the costs and promised returns?” Just because Google sales hit $1.5 billion in 4 years doesn’t mean any other startup can do it.

  6. How do I avoid scope creep? Expanding a project without additional time or resources is called scope creep. It takes a strong team and strong leadership to manage it. What works is a documented change request and review process, as well as quantification of resources required as well as anticipated incremental results.

  7. What does a good plan look like? A good plan is a written one, approved by all key players, which maps out all activities and provides a framework for leaders and team members to follow. Calibrate the plan with resources available to deliver it. Keep the plan simple, focused, and flexible.

  8. How do I know what resources I need? Without adequate resources to support your efforts, you will be faced with trade-offs that often lead to a poor transition to new ways and a burned-out team. What works is documenting early a fact-based resourcing plan, using credible sources, with a reserve allowance of 10% for contingencies.

  9. How do I prepare people to work in the new ways? Most important changes require new ways of working: a combination of new knowledge, skills, mind-sets, behaviors, relationships, and processes. Provide step-by-step job aids, training, and hiring for critical aspects of the new plan. Allow adequate time for this preparation before implementation.

  10. How do I reduce risk? A key aspect of mitigating risk is to first identify the risk elements before you start, and build in contingency plans, in case the risks materialize. Then establish trigger points to clarify when contingency plans need to be activated. This will speed up remedial actions and minimize damage.

Everyone learns and celebrates changes done well during startup hyper-growth from zero to a profitable business, and everyone loses when a promising but challenging startup fails. I hope these points illustrate that the best strategy for every startup evolution is to answer the key questions early, and don’t wait for the first crisis to think about risks and contingencies.

The ultimate objective of every entrepreneur and every team is to make change an opportunity for success, rather than an excuse for failure. When was the last time you approached change with confidence, rather than fighting it all the way?

Marty Zwilling

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Monday, October 20, 2014

Right Entrepreneurs In The Right Place Get Funded

startup-fundingI’m a strong believer that investors invest in people, before they invest in a business plan, or an idea. But I continue to learn that there are a host of other factors, maybe not even related to you or your business, that could keep you from getting the funding that you need. You may not have control over many of these, but it helps to know, for planning purposes, what is really happening.

Obviously, a key factor is always the state of the economy and the mood of the venture capital community. The good news is that both of these are looking up these days. According to the Silicon Valley Venture Capitalist Confidence Index® for the First Quarter 2014, the Q1 increase marks seven consecutive quarters of positive sentiment among Silicon Valley venture capitalists.

On the other hand, venture capital doesn’t get smoothly spread across the geographic and demographic landscape, and the number of active firms has dropped sharply. An older but still relevant study, published by CB Insights, Venture Capital Human Capital Report, summarizes a variety of characteristics for private early-stage Internet ventures funded in the US. The significant findings include the following:

  • Founders need to live in the right place. No surprises here. California (Silicon Valley), New York (NYC), and Massachusetts (Boston) are the places to be in the US for venture capital attention. Almost 80% of the funding handed out in the US consistently comes from these three locations.
  • Whites and Asians lead the race. 87% of funded founders are white, which is not too far above the US population of 77% white. More notably, the second largest group receiving funding was Asians, at 12%, despite comprising only 4% of the population.
  • All-Asian founding teams raise the largest rounds. Asian teams in California raised median funding rounds of $4.4M, significantly higher than the $3M raised by mixed or all-white founding teams. In other locations, the trend was more equal, even somewhat reversed in New York and Boston.

  • Wunderkinds don’t have the magic touch. The average age of founding teams getting funded is in the Gen-X 35-44 year age range. However, the highest median funding did go to those in age range 26-34 years old. Amazingly, no founding teams in the Gen-Y 18-25 year range received any funding in California.
  • Experience does count. Fully 39% of founders funded were formerly CEOs or had founded prior companies. Other common previous roles were executives in Sales, Marketing, and Product Management, all suggesting that VCs back experience.
  • More founders generally means more money. Overall the majority of companies have two or more founders, but over a third are led by one founder. More founders does not necessarily result in larger funding rounds, but the highest median funding generally goes to companies which have two or more founders.
  • Going solo works better on the East Coast. Co-founder companies are the norm in California, but 40-50% of the startups in New York and Massachusetts have only one founder. In New York, these solo efforts even raised more money, with a median of $4M.

If you don’t live in these corridors, don’t assume that you can simply incorporate in the state, or email your proposals there and be considered a local. At minimum, you need to get an introduction from a local player, or better yet, set up a local office and network there. Investing is all about people-to-people relationships.

If you are from outside the US, especially Asia, experts tell me that the focus is even more on relationships. George Wang, founder and chairman of the Beijing-based Chinese Professional Network (CPN), recommends that anyone from the West wanting to get involved in Chinese start-ups slow the pace down and “Spend six months and get to know the place and the people.”

If you need funding, focus first on the human side of venture capital, before you rush to pitch your plan. The evidence confirms that from a funding perspective, a successful startup is more about the right people being in the right place at the right time, versus the technology or solution.

Marty Zwilling

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Sunday, October 19, 2014

How To Recognize The Greatest Boss You Never Had

the-greatest-boss Everyone can recognize a great boss a mile away, so why is it so hard to find one? We all remember a few that are “legends in their own mind”, but that doesn’t do it. In fact, the clue here is that the view in your mind is the only one that matters, rather than the other way around.

Almost every one of us in business can remember that one special manager or executive in their career who exemplifies the norm, who commanded our respect, and treated us like a friend, even in the toughest of personal or business crises. In commemoration of Boss’s Day this past week on October 16th, let’s all tip our hat to that unique and rare business person we wish everyone would emulate.

I’ve asked many peers for the traits or attributes they saw in that person, and most will list the following positive functional traits of a good boss:

  1. Leadership. Shows outstanding skills in guiding team members towards attainment of the organization’s goals and the right decisions at the right point of time. As Drucker said, "management is doing things right; leadership is doing the right things."

  2. Plan and delegate. Possesses foresight and skills to understand the relevant capabilities of team members, and then scheduling tasks and delegating to the right people to get tasks done within deadlines. You are a guide, not a commander.

  3. Domain expert. Demonstrates complete knowledge of his field and confident about that knowledge, with the common sense to make quick productive decisions, and ability to think outside the box.

  4. Set clear expectations. Employees should always know what is expected of them. One of the easiest ways to do this is to set deliverable milestones for each employee over a set period of time. Then review the performance vs. the roadmap or deliverable at least six months prior to a performance review and discuss ways to improve.

  5. Positive recognition. Immediately recognize team members, publicly or privately, when they complete something successfully or show initiative. Congratulate them on a job well done. Most employees are not motivated by money alone. Good managers know that employees want regular recognition that their job is being done well.

In my view, these are all necessary attributes, but are not sufficient to put you in that great category. Most people recognize that it takes more to be great, but the attributes are a bit more esoteric, and harder to quantify. Here are a few of the great ones:

  1. Active listener. Shows traits such as listening with feedback, optimistic attitude, motivating ability, and a concern for people. Listening to what is said as well as what is not said is of the utmost importance. It is demoralizing to an employee to be speaking to a supervisor and be interrupted for a phone call. All interruptions should be avoided.

  2. Shows empathy. This refers to the ability to "walk in another person's shoes", and to have insight into the thoughts, and the emotional reactions of individuals faced with change. Empathy requires that you suspend judgment of another's actions or reactions, while you try to understand them, and treat them with sensitivity, respect, and kindness.

  3. Always honest. Simply put, today’s managers live in glass houses. Everything that a manager does is seen by his employees. If a manager says one thing and does another, employees see it. Managers must be straightforward in all words and actions. A manager must “walk the talk.” That also means recognizing weaknesses, and admitting mistakes.

  4. Sense of humor. People of all ages and cultures respond to humor. The majority of people are able to be amused at something funny, and see an irony. One of the most frequently cited attractions in great personal relationships is a sense of humor.

  5. Keep their cool. A great manager is an effective communicator and a composed individual, with a proven tolerance for ambiguity. He/she never loses their cool, and is able to correct the team members without emotional body language or statements.

Whole books are written on this subject, but hopefully you get the picture. Great managers and bosses must do the technical job well – and they also must do the people job very well. Now that you understand these things, I’m not sure why it is so hard to find a great boss. I guess an even harder question I should ask is why is it so hard to be one?

Marty Zwilling

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Saturday, October 18, 2014

How To Maximize Your Odds With A Part-time Startup

020614-N-0552D-001 Many experts will tell you that you can’t succeed as a part-time entrepreneur, as any good startup will require a 100 percent commitment of your time and energy. But not many of us have enough savings to live for a year or more without a salary, fund the startup, and still feed the family. Thus I often recommend that entrepreneurs keep their day job until the startup is producing revenue.

Of course, if you have investors anxious to give you money, or a rich uncle to keep you afloat, there is nothing wrong with a dedicated and full commitment to the startup, with commensurate more aggressive milestones and growth expectations. We all understand the risk of competitors quickly closing in, and market factors changing before we can roll out our solution.

For those of you who do decide to keep your day job, here are some pragmatic recommendations I espouse on how to make the most progress in your startup, while simultaneously juggling your other critical family and employer roles. In fact, these suggestions have tremendous value, even if you are dedicated and committed full-time to your new startup:

  1. Find a co-founder who can keep you balanced. Two co-founders, both working part-time are actually better than one founder full-time. You both need the complementary skills, ability to debate alternatives, and the tendency to keep each other motivated, that neither could match working alone. One still needs to be the agreed final decision maker.

  2. Schedule fixed times and days for the startup, working with the team. Building a startup is hard work, and requires discipline to get it done. Working part-time doesn’t mean all working randomly alone. Commit to a regular weekend time and a couple of specific nights per week where you meet with the team and focus only on the startup.

  3. Get better at saying ‘no’ to your friends. Learning to manage your own time is critical. Everyone around you enjoys adding things to your schedule, and reducing their to-do list. The key is learning to say no without offering a long list of excuses, or whining about how busy you are. It’s never possible to satisfy everyone, so be true first to your own priorities.

  4. Set realistic milestones and take them seriously. It’s easy for part-timers to make excuses that other priorities caused you to miss milestones, but predictable results and metrics in this mode are even more critical than for full-time members. Use the 80/20 rule to maximize productivity – get 80 percent outcome from 20 percent of focused efforts.

  5. Select a business idea that has a longer runway. Some startup ideas are dependent on a rapidly emerging fad, or have many competitors fighting for a limited market. You can’t move fast enough on a part-time basis to win in these areas. On the other hand, if you have a new technology, with patent applied for, maybe you more time to get it right.

  6. Prepare yourself for a longer journey to success. Seth Godin is famous for saying that the average time for overnight success in a startup is six years, even working full-time. Like any startup solution, the first version will likely be wrong, and require one or more pivots. Learn to look for small indications of success to keep you motivated.

  7. Make learning your full-time vocation. No matter how many full-time, part-time, and family commitments you have, you always need to carve out time for learning new things. Learning is not stealing from any employer, and it prepares you for all your futures. Don’t wait for anyone to pay your way to class, or give you time off for training. It won’t happen.

The advantage of quitting your day job early is that it removes all excuses, and all qualms from you and others, that the new startup is only a hobby. There is nothing that drives an entrepreneur like being hungry, dependent on the outcome, and seeing mounting debt. Without self-discipline, many aspiring entrepreneurs find that a single focus is the only way anything ever gets done.

There is certainly additional risk associated with working a paying job during the day, and working on your startup nights and weekends. First is the risk to your health and family life, which if you lose these, all the business opportunity in the world doesn’t matter.

Then there is the risk of antagonizing your current employer by missing deadlines, reduced productivity, or even getting embroiled in a legal conflict of interest or intellectual property ownership rights. I suggest it’s best to be up-front with your employer, with an honest commitment that your startup work will not impact company commitments or results.

Potential conflict of interest issues with a current employer should be explored openly, and resulting agreement documented, to preclude the possibility that you might lose everything later as your startup succeeds. On the positive side, your employer may like what you have in mind, and become your first investor and biggest supporter.

If your conclusion after all these pros and cons is that the risk is too high for you, you probably need to keep your day-job long-term, and give your startup idea to someone else. There certainly isn’t anything wrong with a regular well-paid job and career, with health-care benefits, and a competitive retirement plan. But the entrepreneur lifestyle is still more fun, even part-time.

Marty Zwilling

*** First published on Entrepreneur.com on 10/10/2014 ***

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Monday, October 13, 2014

Public Company Executives Rarely Adapt To A Startup

Boardroom_at_the_Head_OfficeMid-level or even top executives who “grew up” in large companies often look with envy at startups, and dream of how easy it must be running a small organization, where you can see the whole picture and it appears you have total control. In reality, very few executives or professional stars from large corporations survive in the early-stage startup environment.

The job of a big-company executive is very different from the job of a small-company executive. The culture is different, the skills required are different, and the experience from one may be the exact opposite of what you need for the other. I agree with the seven survival challenges from Michael Fertik, in an old Harvard Business Review article, for executives making the transition:

  1. Empire-building skills are counter-productive. Establishing and wielding influence may help you move resources in your direction in a large business. Similarly, acquiring a larger footprint of direct reports is often a sign of success at large businesses. These instincts kill you in a small company, where requiring more resources is a negative.

  2. Forget your staff and entourage. This is one of the harder transitions for people joining small businesses. The axiom applies to all matters, tiny to large. Small-company heroes are consistently self-reliant. At a small company, if you're constantly demanding more support, you risk turning your net impact into overhead-creep rather than value creation.

  3. Never cover your a$$. There's no place for CYA in a small company. This attitude sows division and mistrust at exactly the early stages when the business most needs to build precious esprit de corps. When you're considering a job at a small company, look for colleagues and founders who don't tolerate CYA.

  4. Go faster. Large companies move slowly because they are usually in reasonable financial condition, with less urgency, have a lot to lose from making bad decisions, and have built layers of management sign-off over the years. These conditions don't apply in a small business. Speed gives you the greatest chance of success.

  5. Be very selective about the problems you attack. Managers at large companies often have the obligation and luxury of thinking about problems that may arise at some future time if things go well. Startups spend little time on this — the risks of enormous success are so remote they aren't worth major planning.

  6. Get used to dynamic budgeting. Large companies usually operate with annual budgets, and often the budgeting process is locked down months before the start of the fiscal year. At start-ups and smaller businesses, budgeting can happen opportunistically, monthly, or even on an ongoing basis.

  7. Understand that your daily impact is huge. Many of your managerial decisions will have enormous and possibly fatal effects on a small business. Larger companies rarely face life-or-death opportunities or threats. Small companies can face them daily. The most practical way to adapt is to focus on learning to evaluate and trust your judgment.

I’ve spent years in large-company environments, and many years later in startups, so I’ve seen and felt the pressures of both. One positive aspect of having worked in a large company is that they usually provide actual training and education for a new role, rather than all “on-the-job training.” This transfers well to startups, and should give you an advantage.

On the other side of the ledger, big company executives tend to be demand-driven by initiatives handed down from the top. In contrast, when you are a startup executive, nothing happens unless you make it happen. In startups, you have to drive multiple initiatives concurrently or the company will stand still. Well defined and well documented processes don’t exist to guide you.

For startups, the time to do the people filtering and fit analysis is before the hire. Look at previous company results, and listen for evidence of self-sufficiency, problem solving, and a thorough understanding of your product, technology, customers, and the market. Most importantly, don’t assume your favorite Fortune 500 executive is the best role model for your entrepreneurial startup.

Marty Zwilling

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